From fiscal 2004 to fiscal 2008, agencies spent $300 billion on
contracts that included award fees, GAO has found. The auditing agency
said it examined 645 evaluation periods for 100 contracts in which
contractors were paid a total of $6 billion in award fees.

The Office of Management and Budget (OMB), in guidance issued in
2007, said the award fees are to be linked to favorable acquisition
outcomes that involve costs, schedules and performance. OMB also said
agencies should eliminate “rollovers” in which contractors are given
second or third chances to earn an award, motivate excellent
performance and prohibit payments for unsatisfactory performance.

However, some of the five agencies examined by the GAO have
implemented those guidelines more effectively than others, Hutton said.

“By implementing the revised guidance, some DOD components reduced
costs and improved management of award fee contracts. Potential changes
at NASA — such as documented cost-benefit analyses — are too recent
for their full effects to be judged. At [Energy], DHS and HHS,
individual contracting offices have developed their own approaches to
executing award fee contracts which are not always consistent with the
principles in the OMB guidance or between offices within these
departments,” Hutton told the Senate Homeland Security and Governmental
Affairs’ Committee's Federal Financial Management, Government
Information, Federal Services and International Security Subcommittee.

However, all those agencies and departments have difficulties
evaluating whether the awards inspire better contractor performance,
Hutton said.

“None of the five agencies has developed methods for evaluating
the effectiveness of an award fee as a tool for improving contractor
performance,” Hutton said. “Instead, program officials noted that the
effectiveness of a contract is evident in the contractor’s ability to
meet the overall goals of the program and respond to the priorities
established for a particular award fee period. However, officials were
not able to identify the extent to which successful outcomes were
attributable to incentives provided by award fees versus external
factors such as a contractor’s interest in maintaining a good
reputation.”

Officials also said it would be difficult to develop performance
measures that could be used for multiple programs, Hutton added.

Jeffrey Zients, deputy director for management at OMB, testified
that the Federal Acquisition Regulation Council is preparing to release
a new FAR rule on contractor award fees to be published in the next 30
days to 60 days.

Meanwhile, officials from DOD, DHS and NASA said
they are following guidelines and making improvements in use of award
fees. Edward Simpson, director of the office of procurement and
assistance management at Energy, said the agency will make changes to
improve the use of award fees for motivating excellence and ban award
fees for unsatisfactory performance. “DOE will address GAO’s concern
immediately,” Simpson testified. HHS officials were not represented at
the hearing.

About the Author

Alice Lipowicz is a staff writer covering government 2.0, homeland security and other IT policies for Federal Computer Week.

The Census Bureau hasn't established a time frame for its cloud computing plans, including testing for scalability, security, and privacy protection, as well as determining a budget for cloud services.

Reader comments

Wed, Aug 5, 2009
B Johnson
Virginia

This is a non-story, but quite in keeping with the current administra-tion's and Liberal goals of demonizing contractors in their quest to re-federalize all government work. First, speak the $$ scare word -"billions" - to give the reader scale of money that he cannot really fathom. Forget that the award fee calculates - using the figures provided - of 2%. This is certainly lower than award fees given in non-government contracts. So the government is getting a fine deal to begin with. Second, award fees are negotiated BY CONTRACT depending on the complexity of the work. There can be no standard other than guidelines - but guidelines are exactly that - guides to help. Also, how does anyone develop tools to measure how much better a contractor might be? And trying to standardize such procedures removes any value of innovation to get better results - standardization stifles innovation. Last, trying to tie better performance with the contractor wanting a good reputation is specious. Reputation follows performance. It costs money to ovverreach, to stretch into new boundaries, and this extra performance is the reason for the award fees. Overall, I see nothing in the article that should be taken negatively, yet the tone is "Something is wrong with award fee contracting and contractorsd are getting away with taxpayer money."

Wed, Aug 5, 2009

THere is zero new with the above discovery. Same finddings 20+ years ago. I am certain it is cyclic like many new Govt. discoveries. I have been close to the pulse and continue to work in teh arena.

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